What Are The Issues Facing The Caribbean Air Transport Market?

Listen in as Aviation Week editors and IATA's Regional Vice President - Americas Peter Cerda discuss key issues facing the Caribbean air transport industry. Recorded on location at the CAPA Airline Leader Summit Latin America & Caribbean 2024.

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Rush Transcript

Karen Walker:

Hello, everyone, and thank you for joining us for Window Seat, our Aviation Week Air Transport podcast. I'm ATW and Aviation Week Network Air Transport Editor-in-Chief Karen Walker. I'm delighted to welcome you on board.

Today I'm in Trinidad, and I'm attending the CAPA Latin America and Caribbean Leader Summit. I am absolutely delighted to be joined by my colleague CAPA Senior Analyst Lori Ranson, and also a very special guest who's I always enjoy having on our program, IATA Senior Vice President Americas, Peter Cerda. So both of you, thank you very much indeed for joining me today.

You're both participating in this conference, moderating, networking, everything. I think we've already had some really good discussions among the panelists, and I just wanted to sort of pick your brains a little on what you're hearing, what your thoughts are about that and really focus on this Caribbean market.

So let me just start very broadly. I think what we're hearing is some of the strengths and some of the still weaknesses in this Caribbean market. It's a special market, but it's also one that's made up of lots and lots and lots of little countries, lots of little islands. Tourism is obviously very important to it, and I think we actually heard from a lady at Barbados saying that the recovery since the pandemic is not the same throughout the region.

Peter, what have you been hearing and, also in your professional capacity, what are you seeing for this region?

Peter Cerda:

Well, I think the first thing we have to realize is air transport is essential for not only economic but to survive in the islands because you don't have highways, you don't have roads, you don't have trains and the maritime infrastructure is just not there. So in order to move, from island to island or to get to North America, to Europe, it has to be by air.

We are seeing in many islands a very strong recovery. It was a destination particularly for North Americans during the pandemic, where Americans felt very safe to travel in close proximity and that has just continued over the following years. So I think the return in terms of tourism has been extremely strong. Actually it's already breaking record, not with 2019, but 2022, then '23, then now '24, we're seeing record numbers going up on the table, which is very positive.

Connectivity has also returned very strongly in many cases, particularly from North America. We are now seeing a little bit better connectivity with Europe, but there are still opportunities that we need to improve. There's still a lack of connectivity from Latin America, Central America and even parts of Europe. Many participants who have come to the event have said, "You know, I had to come through Miami, or through Panama to get to Trinidad from Brazil, or Argentina, or Chile," and when you look at the proximity, you're right next door almost. You're only seven miles away from Venezuela. So it shows the potential that we have in the Caribbean to really further develop connectivity, further develop tourism, and further develop opportunities for more business.

The other aspect that we have to talk about is interregional connectivity, which has always been a big challenge in this part of the world. We've had numerous airlines that have gone bankrupt, disappeared, that has always affected the interregional connectivity, much more than the connectivity to the US or to other parts of the region.

That's something that governments have been talking about trying to address, but they've all done it in isolation. Instead of doing it collaboratively, these governments want to have the biggest hub and their national airline, and what we're telling them as an industry is the Caribbean doesn't have the size nor the magnitude to have numerous hubs or numerous airlines.

So I think that is one of the big challenges that these governments in today's environment really needs to analyze how we improve interregional connectivity because that's going to bring more social development, economic recovery amongst the islands. That's also going to stimulate better tourism for travelers that come from North America or Europe that can have an experience of two or three islands, instead of just one island.

Karen Walker:

Absolutely. You and I both talked to some pretty big guns earlier today on the stage, you with American Airlines and me with LATAM Colombia, and that whole connectivity question, they were both making it really clear, "Yes, we'd like to do that, but we can't do it if we're going to lose money." And that's a big post-pandemic thing these days. A lot of airlines, of course, still in debt and much as they'd love to be able to grow service to this part of the world, they're not going to do it if the connection doesn't make sense and if they can't make money, and as you say, the islands are small.

Lori, you had several airlines on one of your panels that were local to this region, like we know Bahamas there. What were some of the key thoughts you had when you were listening to them talking?

Lori Ranson:

I think there's the desire by those airlines to improve connectivity, but to build on Peter's point, each country can't sort of have their own national airline. I think airlines and countries need to have a little bit more realistic approach in terms of how they really want to improve connectivity and messaging in terms of this really could be beneficial for tourism, the economy, and I think it's just sort of a slow-moving process that they really need to try and understand.

I think it's a challenge because it seems like airlines come and go in the market, and so you have that sort of challenge in sustaining what connectivity you have and growing connectivity. So I think it's just sort of a slow evolution that needs to occur. And you see sort of small steps when they are talked about, some sort of testing that there's doing on day trips where taxes are a little bit cheaper. Yeah, that's a step in the right direction, but that's also sort of a unique scenario. I mean you can't do that on the larger itineraries, but it impressed me that at least there were some forward-thinking in that regard. But that's still a lot of road ahead in terms of really trying to build up the connectivity.

Karen Walker:

Now you just mentioned the big ugly word here, taxes, which, I mean, is an ugly word anyway in the world when it comes to aviation because we know people tend to look at airlines as sort of an easy source of revenue. But especially here in Latin America and very particularly in the Caribbean, huge percentages of ticket prices. I mean, somebody said, one of the airline people said, about there was a one route that they did with something like $132 of that price went straight to taxes and fees, so they can't even get a dollar from that before they've allowed for that $132.

You know a lot about this, Peter. You've been fighting this. What's still going on here in the Caribbean that needs to change?

Peter Cerda:

I think the first thing that we need to change is the way governments see the industry as that, I've said it many times, as a cash cow, instead of seeing as a strategic partner. We all know the beauty that the Caribbean has, the potential and these are mature markets. They're not developing. They're very mature, they have their good connectivity with North America.

But that's what gives them, I think, that empowerment just to overtax the industry, and what they're not realizing is the world has become much smaller with technology. Airplanes can fly further without having to make technical stops or stop in a hub, get off an airplane.

When it's high season in North America in the winter and people want to go somewhere and they start looking at the price to go to the Caribbean or the price to go to Dubai or to another exotic destination, in many cases, it's actually more economical to go around the world than it is to take a two-and-half-hour flight. And when you start looking at how the price structure is set up, how much is it costing my family to go, the airfare is actually quite competitive. It's really gone down over the last 12, 15 years.

What has not gone down is the amount of taxation. Actually, we've seen an increase in taxation over the years. When you look at the Caribbean specifically, you see in many markets that 67% of the total ticket price or the ticket that the passengers pay is going into taxation. In today's environment where passengers are much more savvier and you have other markets that are becoming much more competitive, you're going to begin to see passengers go elsewhere.

Then the first thing government say, "Well, I want more connectivity to my market," but you won't get that connectivity because you're out-pricing yourself compared to other markets. When you look at the Caribbean, particularly the Eastern Caribbean, which is again a mature market, but one that has struggled and one that works very much with different cultures, cultural standpoints, you have the English Caribbean that's pretty much focused to Canadians, North Americans and Brits. Then you have the French and the Dutch, which is related more to that side, the Spanish-speaking. And instead of diversifying your portfolios, you're only focusing on those market. But if you continue to over-price, those customers are going to start looking to go elsewhere.

And we're seeing it. You have places like Mexico, which is very competitive. You see places in Central America, which are really upping their game. They're developing, they're focusing. And one thing the pandemic showed us is you have governments that are really taking this seriously in developing air transport and tourism and those that are, not just saying it for the folks, those who are really serious about it, they are stepping up to the plate. They are sitting with the industry, they are becoming competitive, they're incentivizing their own taxes, and that has stimulated into some really strong returns. In Mexico City, which is again a very mature market, you now have a new destination with a new airport in Tulum. You no longer have to fly to Cancun and drive down four hours. You could fly direct.

What did American JetBlue, all the international carriers do, Copa? They started flying there. That airplane could have gone somewhere in the Eastern Caribbean. Instead, it went to Mexico. Why? Because the offer that Mexico provides, it's greater and incentivizes more than going to the Eastern Caribbean.

And that's what our governments failed to see many times. Just because that airline has flown to your market for 50, a hundred years, doesn't mean they're going to stay loyal to you. It's all about the bottom line. And the Caribbean is one region that should be learning that airlines will pull out when it's no longer financially viable.

Karen Walker:

Absolutely, that's right. Again, I think we heard someone say... well, the first, it's all very well, you can have the most wonderful place for people to go, beaches and things, but the first thing people are going to look at is the airfare and then look and can make comparisons. 'Oh, well, same price. I could go there.'"

That's the other thing that we kept hearing was that people are saying, post-pandemic, that there's been a change here, and people are sort of saying, "I want to go where somewhere I haven't been before. I want to see something different. That place is always crowded." Then they're saying, "And it's a lot of hassle to go to that place because immigration and security, et cetera, et cetera and let you know not many flights." So it all becomes a self-fulfilling circle to put people off, as you say, just when you're trying to do the opposite.

Peter Cerda:

Passengers, when you book your holidays and you come to the Caribbean, wherever you go to, you want to this seamless experience. You want to get to the destination as quickly as possible, go through immigration and start from your vacation or go on business. What we see in many cases, not only a Caribbean challenge, but it's almost a global challenge, is you land and then you find yourself stuck in immigrations for two and a half hours having to fill out all sorts of forms, and I just want to get to the beach. And once you pass that, you're going through customs and on the way out with security and so on.

As an industry, we need to do a better job in speaking to the governments. What we're talking about it's not revolutionary, it's not futuristic. It's today's reality. And, again, those countries where they utilize technology to the advantage of the customer to help the industry continue to evolve is going to do much better than other places that are not implementing these technologies and these processes.

And word of mouth gets around there. Our worst or best support, our worst enemy or best support is social media. When things are going really well, you're not going to hear a lot about the place or the big experience. But when things go really bad, it's on social media immediately. And somehow our industry always gravitates to that and that is something that we have to, as an industry, we're working hard to do, but we need our partners. It's not only the airports, it's not only immigrations. It's customs, it's a whole supply chain that needs to do a better job in how we can go about that.

Karen Walker:

Correct, absolutely. And they may not crow or, as you say, put on social media about, "That was a really easy flight and a really easy immigration, a great price," but they'll remember it when they've had a bad experience and, as you say, queued with their kids, they all wanted to get to the beach for a long while to get through security. They'll remember that, and then they'll remember, "But when we went so-and-so place, it was really easy." So guess where they're going to go back to next time?

What do you think, Lori?

Lori Ranson:

Oh, definitely, because easy plus more economical, what's your choice going to be? I mean, it's pretty easy to figure out.

And what amazes me is like some of these countries seem to operate in a silo. I mean, you look at Ecuador. What I thought you said about Ecuador earlier, Peter, was so interesting because they were able to understand, "Okay, if we lower taxes, we're going to increase tourists. We're going to increase travelers coming to the country."

I don't know if other countries just ignore the success or just don't want to try and replicate it or think about it, but that's what amazes me. You do have success stories in the region, and I feel like why aren't countries taking more notice of this?

Peter Cerda:

I think one, particularly in our region, Latin America, when we see changes in government, the industry has to hit at the highest levels very early on and really make, in many cases, the president and ministers understand the importance of air transportation to their economy, their social well-being, what can be achieved to support that administration. Because once you start discussing these issues with governments two or three years into their administration, there's no chance for significant change because change does take time, building better infrastructures many, many years. Changing policy requires to go to congress, again, can be a significant challenge.

That's why it's so critical for governments to understand and really get the government to commit and prioritize and work with the industry. And in the case of Ecuador, Panama is another great example, these are governments that have actually get it. Regardless of the administration and the party, it's a continuous work in progress.

That's the other essence. It should not be dependent on the government in power. It should be a policy of state, regardless of who's in the administration. Because many of these activities, issues that we have to address, it goes far beyond the four or five years.

In the case of the Caribbean, the frustration has always been why can't we improve Caribbean connectivity? And we've always talked about we need to make it seamless. Why are people having to go through customs, immigration and security, outbound, inbound when the flight's only 15 minutes and Caribbean's are great at success. They've gone through two cricket World Cups, and during those events, they eliminated cross-border requirements. It was done very seamless, very safe, very secure without issue. And instead of just keeping it and just continuing and creating a culture of multi-destination experience and connectivity, they've gone back to the security, immigration, customs. So the flight's 15, 20 minutes, but the experience at the airport to go through all the processes are 45 minutes.

That's why when you have travelers coming from Europe or in North America, they'll go to one island and stay in that island, instead of these island governments all working together and say, "How do we create the dynamic experience where passengers can land in Barbados, spend a few days in Barbados and then go on to Antigua, have another experience, and then get back on the airplane and fly to the UK or to North America?"

But it's very competitive amongst themselves. They do not want to have the collaborative spirit. But then they're the first that complain that there's no interregional connectivity, but you're not going to get that if the governments can't agree and play on a level playing field.

Karen Walker:

You're right. And a big part of your role, of course, and IATA's role is, as you say, trying to get ahead on that message with these governments, especially when governments are changing. But you're right, it's almost like something needs to be sort of just encoded in their aviation policy so that these things don't have to keep switching.

I thought it was very interesting, again, I think it was one of your panels, Lori, where one of the airline execs was saying, "If only the governments would understand if they halved the taxes they put on our air tickets, we could more than double the number of people we sell to and bring in." So that's, first of all, you're going to get your money back, but secondly, you're going to get a lot more people come to your country spending on hotels and food and all the things they do. So the governments they're better off, a lot better off.

Let me just ask you about another thing, subject that's come up quite a bit here, which is sustainability. And we all know how important that, of course, is with aviation, but we're starting to see this spread a little bit in terms of sort of implying that tourism is wrong. People shouldn't be going to just have fun and especially shouldn't be flying there. So that's also an issue, I think, that the Caribbean is battling a little bit.

Again, Peter, you follow the sustainability side of this industry a lot. What are your thoughts here?

Peter Cerda:

Well, obviously, as an industry, we have goals. We have 2050 goals, we have 2030 goals, particularly with the SAF issue. We know that's going to be a significant uphill battle here in the Caribbean because it'll be just the natural resources are not available. That's become a challenge for us in Latin America as a whole because, first, we don't strong government policies on developing SAF, incentivizing and mass production so we're already behind the curve on that.

But more importantly, we have to continue to speak to government on having the right policies and incentivizing and being socially responsible, all of us. But we have to have the right plan in place, which is something we're also lacking.

We're seeing many governments around the region in the Caribbean being discussed imposing green taxes. You're imposing green taxes on the industry that's doing everything possible and is willing to do more, but we're at the mercy of the government to provide us what we need to do, but it's much easier for them to impose a green tax. And when we talk about the Caribbean, it's another tax, which it fills the coffers, it's not really resolving some of the major issues.

And we've heard a lot of time this morning in these other airlines, Avianca and the US carriers, are really taking responsibility on sustainability. It's not only the fossil side. It's how do you preserve what you have, your surrounding, your geography, jobs, entitlement?

In this region, I have to say there's a significant proactive stance on it. Unfortunately, many of our governments are sometimes looking the other way. They don't want to see what's being done and what we're asking for. And this puts us at risk, particularly as we see North America, we see what's happening in Europe with measures by governments being imposed. We see what society's doing and here in Latin America, we tend to kind of always are somewhat several steps behind the curve.

This is one area I don't think we cannot be in front to the curve, we have to be in front. This is a region with a significant amount of natural resources and the region can actually become a leader, a leading producer of SAF for the rest of the world. But again, we need our governments to be open-minded to create the right policies, incentivize so we can create the infrastructure to produce. And as was mentioned this morning right now, we don't have one refinery in the region that's actually producing an ounce of SAF. So you can imagine the stress that the industry is on where, if you're a Latin carrier out of Mexico, Iberia, sorry, Avianca, Copa, you can pick up fuel in SAF in Los Angeles. But when you're flying into Bogota, Buenos Aires, Sao Paulo, you have no access to it.

That's the challenge that we face as an industry, something that we're really pushing. We are now beginning to see governments like Peru, like Brazil, Colombia beginning to look at it from the regulatory standpoint. But from the regulatory discussion until it's implemented, that can be a world of time, and that's what we don't have right now.

Karen Walker:

Yeah, you're right. The risk they have is that the rules are going to be imposed on these governments and, therefore, their airlines and their airports, and they will not have a say, and they have that chance to have a say right now, yes?

Peter Cerda:

I'll say for the land carriers, that's the biggest concern that they have. Our land carriers are in developing regions, developing countries. When they compare their sites compared to other regions, we're growing and that's going to cause and have negative impact.

Our carriers are very dependent to continue to grow to Europe, to grow to North America, but if policies are implemented that can hurt them, their growth is going to be impacted and the price to travel will be higher. And that will, again, put our industry in dire straits because of our governments not being proactive and taking the steps that needed to be taken.

Karen Walker:

I thought it was good that the LATAM Colombia CEO raised the issue of just how much LATAM, and it's not just them, I know other carriers are doing this right in this region. But investing in and actually participating in conservation of just the sorts of things here that this region is blessed with, the rainforest, the rivers, et cetera, in conserving all of those, and that's a huge part of this sustainability thing.

Lori, we have another full day ahead of us at this conference. What are the things you're maybe looking forward to hearing from some of our other speakers here?

Lori Ranson:

Just a lot of network connectivity and network strategy, sustainability also because I think the industry is sort of realizing it has to be holistic because that's a big part. It's not just SAF here at LATAM, talk about single-use plastics. That's a big issue as well.

I'd like to hear more about technology and how the industry is using technology just all around, perhaps AI or distribution or just how technology can help the industry perform better and maybe some of the obstacles to technology implementation as well, and how this can be overcome.

Karen Walker:

Thank you so much, Peter, Lori, for joining me here. Thank you, of course, to our listeners for following Window Seat. Make sure you don't miss each week by subscribing to the Window Seat podcast on Apple Podcasts or wherever you listen. And, of course, thank you to our producers, Guy Ferneyhough and Cory Hitt.

This is Karen Walker disembarking from Window Seat.